UPDATE: Finally: Republicans Finger Democrats as Responsible for Fannie/Freddie Meltdown
This was a fifteen year campaign by the Democrats, ACORN, and Fannie and Freddie's executives to loosen up mortgage requirements to the point where there simply where no requirements at all.
Net result? Trillions of federally guaranteed dollars flow into the housing market that shouldn't have been there -- suddenly buying a house becomes the easiest possible purchase you can make. All you need is a signature and a smile.
If the federal government were guaranteeing a trillion new dollars for no-money down car purchases with no credit checks or proof of employment or income, what do you think would happen to the price of cars?
They'd triple. For a while.
Housing market turns into dangerously overinflated bubble. Which is what always happens when a trillion fresh, cheap, easy dollars flow into a sector and begin chasing the same limited pool of goods.
Millions of credit-poor homebuyers -- with erratic and unverified incomes -- now have mortgages with payements well out of their range. But at least the homes are still worth their selling price... so if they default on a $350,000 house, no sweat, the bank now owns the $350,000 house, which can be sold for $350,000 to someone else.
But finally the bubble bursts -- and now all those credit-poor, erratic income homeowners now have mortgages for $350,000 on houses actually worth $150,000.
So what do they do? They walk away or stop paying. Which makes perfect economic sense.
Leaving Fannie and Freddie guaranteeing a trillion in bad mortgages. Which means you're guaranteeing them.
The bank made a $350,000 payment to the home-seller -- but now has only a $150,000 home to show for it. Uh-oh.
You the taxpayer just went on the hook for that $200,000 loss.
Via Ace of Sp[ades.
In reality, this exaggerates the amount of the loss. That $350,000 house will probably re-sell for $200,000 or more. Housing prices have dropped, but nowhere near 60-70%.
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